European bank stocks surged Wednesday, lifting Deutsche Bank (DB - Get Report) shares to the top of the German market, following a report that suggested the European Central Bank is preparing ways to mitigate the impact of negative interest rates on financial sector profits.
Reuters reported Wednesday that the ECB's deposit facility, which charges lenders 40 basis points for overnight deposits instead of paying interest, could have a tiered structure that would allow banks to pay less while being encouraged to lend more money into the real economy in order to kick-start growth. The ECB's aim, Reuters said, would be to return some of the $7.9 billion in has collected from the negative deposit rate, which first slipped below 0% in June of 2014.
"If necessary, we (also) need to reflect on possible measures that can preserve the favourable implications of negative rates for the economy, while mitigating the side effects, if any," ECB President Mario Draghi said earlier Wednesday during a speech in Frankfurt. "That said, low bank profitability is not an inevitable consequence of negative rates."
Deutsche Bank shares were marked 3.45% higher in late afternoon trading in Frankfurt and changing hands at €7.56 per share, while rival Commerzabank AG (CRZBY) was marked 5.07% higher at €7.15 per share.
The Stoxx 600 Europe Banks index, the sector benchmark, added 1.5% by mid-afternoon to trade at seven-day high of 140.64 points.
Benchmark German bund yields, which had fallen to a 2016 low of -0.0085%, pared some of those declines on the Reuters report, but remained under pressure after Draghi said "substantial accommodation" in the currency area economy was still needed to "secure the path of inflation convergence".
"Just as we did at our March meeting, we would ensure that monetary policy continues to accompany the economy by adjusting our rate forward guidance to reflect the new inflation outlook," Draghi said.
Germany's Debt Management Office, meanwhile, sold €2.433 billion in 10-year bunds at a negative yield of 0.005%, while getting more than €6.31 billion in bids for the first benchmark sale with a negative yield in nearly three years.
The sale means roughly one fifth of the world's outstanding debt -- around $11 trillion -- is trading with a negative yield.
Benchmark 10-year Treasury note yields were marked 4 basis points lower in early New York trading at 2.367%, the lowest since December 2017 and a move that extends their decline since Federal Reserve Chairman Jerome Powell's press conference on rates last week to around 25.2 basis points.
The yield gap between 3-month Treasury bills and 10-year notes, meanwhile, extended to minus 9 basis points, creating a so-called inverted yield curve, a continue which Federal Reserve studies have shown to predate every U.S. recession for the past 60 years, exaggerated in part by the weakest February housing starts data in 18 months and last week's grim reading for U.S. manufacturing activity.